As Chief Operating Officer and Associate Chief Investment Officer of the Regents, Arthur Guimaraes and the Office of the Chief Investment Officer oversee the UC Retirement Savings Program investments. In that role, he works closely with systemwide Human Resources, faculty committees and others to implement upcoming changes to the investment funds because, as he said, “We’re part of this great university, and collaborating across the system brings better results.” Guimaraes recently answered questions about the upcoming changes.
Why is UC making this change?
Much of the defined contribution market has moved to smaller menus, as they are both more efficient and more effective for a number of reasons:
- It reduces overlap among funds, while continuing to offer high-quality funds in a range of asset classes;
- A simpler menu with less duplication is easier to understand and use;
- It enhances value for participants by offering low cost funds;
- It allows more efficient monitoring.
At one point, the UC Retirement Savings Program had about 200 investment funds to choose from. That is confusing to participants and is not best practice. The trend in the workplace retirement plan industry is fewer funds, and we think it’s the right path for UC’s plan participants.
What are the advantages of the change for UC employees?
One advantage is less complexity; when you have too many funds to choose from, the average investor is confused. It’s too many choices and too much overlap. We’ve found many people aren’t even making a choice.
For example we have a large group of plan participants (roughly 70%) within the DCP plan who invest solely in the UC Savings Fund. The UC Savings fund has a solid long-term track record for its objective, but it may not be the only investment one wants in retirement. Until recently, the UC Savings Fund was the fund participants were automatically enrolled in if they didn’t make a choice.
A second advantage is that most of the funds in the new menu have lower fees than many similar publicly traded mutual funds. Bottom line, as part of our ongoing effort to maintain quality of the UC Retirement Savings Program, our new line-up offers a manageable number of low cost funds in a range of asset classes.
I also should point out that those participants who want additional investment choices continue to have access many more funds, including the ones that are being removed from the main menu, through Fidelity’s BrokerageLink.
Are there advantages for UC?
UC has a fiduciary responsibility to the Retirement Savings Program — which means UC is obligated to act prudently on your behalf. UC meets its fiduciary obligations in part by making sure your plan’s fund lineup is easy to use and appropriately diverse, that its fees are reasonable, and that you have enough information on the individual funds to make educated investment decisions.
Didn’t we just have a large reduction in the fund menu?
Yes, in 2013. The main purpose of that initiative was to eliminate funds that did not have institutional class pricing. We eliminated 128 funds, leaving 65 funds. Now we will go to 16 options and offer a menu that will encourage participants to make good investment choices.
Is this type of change happening elsewhere, or is it unique to UC?
It’s not unique to UC, not unique to California or to the U.S., and the basis is good governance and presenting a fund menu that is good for plan participants.